The Loan Modification includes changing the original terms of the mortgage through several methods. This option provides for either a permanent change in one or more of the terms of your loan, which allows a loan to be reinstated and results in a payment you can afford.
If your mortgage is an adjustable loan, the lender might freeze the interest rate before it increases, or they can change the interest rate to a more manageable rate for you. A lender might also extend the amortization period. This is called a loan modification.
Loan modifications are rare and can consist of any of these things:
• Permanent change in the interest rate
• Capitalization of delinquent principal, interest, or escrow items • Possible extension of loan term
The use of any of the three items above will result in the re-amortization of the loan. Maximum interest rate adjustment to current market rate plus 150 basis points, at the lender’s discretion. Note: interest rates may be reduced below market rate.
All, or a portion, of the PITI arrears (Principal, Interest, and Escrow Items) may be added to the mortgage balance. Foreclosure costs, late fees, and other administrative expenses may not be added.
The lender may collect the legal and administrative fees (resulting from the canceled foreclosure action), from you to the extent not reimbursed by HUD, either through a lump sum payment or through a repayment plan separate from, and subordinate to, the modification agreement. No administrative fees for completing the Loan Modification documents can be passed on to you.
It is important to know that the modified principal balance may exceed the principal balance at origination and the modified principal balance may exceed 100% loan-to-value. When this happens, the following conditions will apply:
• All Loan Modifications must result in a fixed rate loan.
• The Loan Modification must fully reinstate the loan.
• Subsequent defaults are to be treated as a new default.